U.S. Treasuries: Not Finding Much Love In Foreign Lands

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Includes: BIL, CLTL, DFVL, DFVS, DLBL-OLD, DLBS, DTUL, DTUS, DTYL, DTYS, EDV, EGF, FIBR, GBIL, GOVT, GSY, HYDD, IEF, IEI, ITE, OPER, PLW, PST, RISE, SCHO, SCHR, SHV, SHY, SPTL, SPTS, TAPR, TBF, TBT, TBX, TLH, TLT, TMF, TMV, TTT, TUZ, TYBS, TYD, TYNS, TYO, UBT, UST, USTB, VGIT, VGLT, VGSH, VUSTX, ZROZ
by: Constantin Gurdgiev
Summary

I have been warning about the cliff of new bonds issuance that is coming for the U.S. Treasuries in 2019, pressured by the declining interest in U.S. debt from the rest of the world.

December 2018 figures are a further signal reinforcing the importance of this warning.

January 2019 saw a decline in the benchmark U.S. Treasuries (10-year) yield, compared to 2018 annual yield.

In recent months, I have been warning about the cliff of new bonds issuance that is coming for the U.S. Treasuries in 2019, pressured by the declining interest in U.S. debt from the rest of the world. December 2018 figures are a further signal reinforcing the importance of this warning (see U.S. yields comparatives here).

In December 2018, foreign buyers cut back their purchases of the U.S. Treasuries by the net USD77.35 billion, following a net increase in purchases in November of USD13.2 billion. December net outflow was the largest since January 1978. On a positive note, Chinese holdings of U.S. Treasuries increased in December, after declining for six straight months. China held USD1.123 trillion in U.S. Treasuries in December, up from USD1.121 trillion in November.

Here is the historical chart, including the 4Q 2018 estimate:

Not quite an armageddon, but statistically, foreign holdings of the U.S. Treasuries remained basically flat from 1Q 2014. Which would be fine, if (1) U.S. new net issuance was to remain at zero or close to it (which is not the case with accelerating deficits), (2) U.S. Fed was not "normalizing" its asset holdings (which is not the case, as the Fed continues to reduce its balance sheet - see next chart).

Note: January 2019 saw a decline in the benchmark U.S. Treasuries (10-year) yield, compared to 2018 annual yield:

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.